In a significant ruling that could shape the future of India's solar power sector, the Delhi High Court has upheld the rights of solar power-producing units to access benefits under the Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR). The Court's decision, delivered in May 2024, strikes down instructions issued by the Central Board of Indirect Taxes and Customs (CBIC) that had attempted to exclude solar power producers from the scheme. As noted by the Court, the impugned instruction, dated 09 July 2022, issued under Section 151A of the Customs Act, 1962, was deemed to have exceeded its advisory mandate, leading to this pivotal decision.
The MOOWR scheme, introduced in 2019, is a duty deferment program designed to facilitate manufacturing operations in India. Under this scheme, manufacturers can import capital goods and inputs into customs-bonded warehouses without paying upfront customs duties. The duty payment is deferred until the goods are cleared for home consumption, providing significant working capital benefits to manufacturers. As observed by the Court, the MOOWR Regulations essentially facilitate the housing of imported capital goods or imported raw materials in a duly designated warehouse and for a manufacturing process being undertaken in relation to those goods.
The controversy arose when solar power producers, who had obtained necessary permissions under MOOWR, began importing capital goods such as solar panels and equipment without immediate duty payment. The unique aspect of their operation was that their only output product - electricity - is exempt from customs duties. This created a situation where these producers could potentially operate without paying any customs duties throughout their production lifecycle, even when clearing electricity for domestic consumption.
In July 2022, the CBIC issued instructions asserting that electricity production fell outside the scope of MOOWR. The primary justification for this exclusion was the technical requirement in Regulation 15 of MOOWR, which mandates the affixation of a one-time lock to goods removed from warehouses for export. CBIC argued that this condition could not be met in the case of electricity, which cannot be physically locked for transportation. As per the instruction, Electricity, which may come to be cleared for home consumption, cannot possibly comply with the one-time-lock condition thus it would consequently fall outside the scope of the MOOWR Regulations.
The legal challenge was led by Acme Heergarh Powertech Private Limited and other solar power producers, who contested the validity of the CBIC's instructions before the Delhi High Court. The petitioners argued that they had valid licenses under MOOWR and that solar power generation should not be excluded from the scheme. The petitioners also highlighted that the CBIC's instructions effectively revoked their rights without proper legal justification. The impugned Instruction compels and commands the Customs authorities to cancel all licenses pertaining to solar generation units and thus impeding the statutory discretion.
The Court's decision rested on several crucial observations. The Court found that neither Section 61 (duration of warehousing) nor Section 65 (manufacturing and other operations) of the Customs Act, 1962, could be interpreted to exclude solar power-producing units from MOOWR benefits. The Court emphasized that the MOOWR Regulations apply to all goods that undergo a manufacturing process or other operations in customs-bonded warehouses. The fact that electricity could not meet technical requirements like a one-time lock did not justify exclusion from the scheme.
The Court determined that CBIC had exceeded its advisory mandate under Section 151A of the Customs Act. While Section 151A allows CBIC to issue policy directions, the Court pointed out that these instructions cannot interfere with the exercise of discretion by customs officials. The instruction issued on 09 July 2022 was seen as an attempt to curtail the discretion vested in customs officers by compelling them to revoke the licenses of solar power producers without proper justification
The Court clarified that capital goods need not be consumed or integrated into the final product to qualify for MOOWR benefits. The Court highlighted that the MOOWR scheme's intent was to facilitate manufacturing operations, and the use of capital goods in the generation of electricity should qualify for the same benefits, even if electricity is exempt from customs duties. The Court rejected CBIC's argument that technical requirements like input-output ratios should determine scheme eligibility. It emphasized that the MOOWR scheme was designed to defer duties, and such requirements should not be a limiting factor. The Court stressed the importance of a purposive interpretation of the law to fulfill its objective of facilitating manufacturing operations in bonded warehouses.
This ruling has significant implications for India's solar power sector. Solar power producers can continue to benefit from duty deferment on imported capital goods, reducing their initial capital expenditure burden. The judgment provides clear guidance on the applicability of MOOWR to solar power generation activities. The ruling may encourage more investment in the solar power sector by maintaining favorable import duty structures.